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By ComplyAdvantage

Sanctions screening is one of the most time consuming and painful elements of Anti-Money Laundering (AML) compliance for the insurance industry. Legacy IT systems and manual processes can’t cope with the high customer volumes and unclear risks – least of all be effective in stopping financial crime. But next-gen RegTech solutions driven by artificial-intelligence, machine learning and big data analytics are reducing the burden of compliance by offering high automation and increased accuracy. Pushing this traditionally offline industry into the 21st century.

Too many checks and not enough time

Sanctions screening forms the main obligation of the insurance industry’s AML requirements. Whilst the actual regulatory requirements vary by an organisation’s level of risk and business model, all need to screen prior to entering a contract, many need to monitor their customers for any changes during the contract lifecycle and also prior to making a claims payout.  If there is a potential match, this typically generates manual work.  Insurers need to screen and potentially stop customers at quote stage, or risk letting them through. It is especially challenging for companies who offer instant quotes where this could damage customer experience and cause a loss of business. Some providers may get around this problem by approving policies and screening retrospectively. However, this would be too little too late – risking regulatory penalties further down the line.

The biggest pain point with current AML legacy systems and processes stems from the expectation from regulators to go further than just checking for an exact name match on a sanctions list. Any person on a sanctions list is more likely to submit a variation of their name so as to deceive checks. To ensure no one slips through the net, regulators expect insurers to widen the scope of their search. However, with so many thousands of customers this can produce a torrent of incorrect risk alerts (false positives) resulting in substantial manual work. 47% of compliance officers say that high “false positive” rates reduce their confidence in their systems accuracy. Insurers must find a sustainable balance between the screening requirements of all of their products, their resources and the needs of the regulator.

A smarter solution

RegTech allows companies to monitor external risk indicators more effectively than legacy technology systems. Artificial intelligence can be taught to address repeatable high-volume tasks, such as monitoring global data sources for changes and gathering new insights, vastly more efficiently than teams of researchers.

Artificial intelligence not only improves how quickly – and how many – clients can be screened for risk but also how accurately. It is here that smart solutions offered by RegTech companies have really begun to show their worth. The level and quality of advances in intelligent matching capabilities is unparalleled by human alternatives. Known as“fuzzy matching”, companies can simultaneously scan a wider breadth of possible names than ever before, catching all name variations, even those which may have been intentionally misspelt – while adjusting the breadth to suit their risk appetite and using advanced filtering to reduce false positives. Helping companies avoid the reputational damage that can be incurred from an inadvertent sanctions violation.

This is especially useful for companies who deal with clients in multiple jurisdictions and languages. Where names may differ depending on language or script used, for example screening for variations of Osama bin Laden in different dialects. The accuracy offered by these solutions can make insurers truly confident that they have sufficiently satisfied their sanctions screening requirements.

Certain products require more than just automated sanctions checks on its customers to be approved by insurers. Where deeper due diligence is required for higher risk products, insurers are also looking for additional information to understand customer risk. For example, are they politically exposed? (Referred to as Politically Exposed Persons (PEP) Have they committed insurance fraud? Artificial intelligence has vastly improved the quality and coverage of information available here, too.

The Future of Sanctions Screening

Insurance Technology (InsurTech) and Regulatory Technology (RegTech) companies have the know-how and the flexibility to come up with advanced solutions. They also have the finances with over $2 billion invested in InsurTech in 2016 alone. And with 50% of consumers saying they would happily switch to innovative insurance solutions they also have a market. Smart sanction screening solutions will allow insurance companies to screen larger volumes of customers faster and more accurately than ever before. Most importantly they will ensure that insurance products do not become a go to tool for enabling financial crimes.

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